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Omo law not priority, says pensions regulator

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The Pensions Regulator chief executive Bill Galvin says he will not push the Department for Work and Pensions to introduce legislation to improve take-up of the open market option.

In an interview in this week’s Money Marketing, Galvin says the issue is not a priority for the regulator in the short term.

He says: “I do not expect in the short term that we will be rushing to convince the DWP that we need any legislation in this area. I think there is a lot of goodwill in the defined-contribution area to try and get the open market option right and get it sor- ted for auto-enrolment. Down the line, there may be a need to legislate but the first thing to do is to try and settle on an idea of what people think is a good solution.”

TPR recently produced a DC paper looking at a number of regulatory issues including the Omo and would have to be heavily involved if new legislation was to be introduced.

Last year, pressure grew on pension providers to improve the process of shopping around after an ABI email to members said the Government had a “serious appetite” for wholesale reform.

In November, The Pensions Regulator and the DWP issued a joint statement urging providers and scheme trustees to improve communication of the Omo. This was followed in December with the threat of legislative action if the industry failed to establish how the Omo could be improved.

Worldwide Financial Planning IFA Nick McBreen says: “Individuals and providers in the industry have been trying to promote the Omo so that clients maximise their benefits. If the regulator’s brief is to reduce consumer detriment, then it should be part of that drive.”

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. One word – scandalous

  2. I feel that the TPR have missed a trick here. In what other area in pensions can there be such a “quick win” for the majority of scheme members?

    My hope is that Scheme’s do not perceive this to mean that they can get away with offering second rate retirement assistance to their members!

  3. Open Market Option

    It isn’t Open and never has been, the Market has all but vanished so it isn’t really an Option is it?

  4. This needs more explanation from the regulator. It’s hard to see why expanding the use of the OMO would not be an easy way to increase returns to annuitants. Sometimes a series of small steps are better than waiting to try to get everything right in a major complicated reform.

  5. You don’t legislate on something like this, you educate!

  6. Evan Owen | 17 Feb 2011 11:09 am

    Open Market Option

    It isn’t Open and never has been, the Market has all but vanished so it isn’t really an Option is it?
    ————

    What makes you say that? I’ve even seen one provider accepting funds as low as £1,000.

  7. Big providers won’t change their practices without legislation. It’s the one change that would create a step change in better customer outcomes. Why do only 1 in 6 customers get an enhanced rate? And it’s even less in occupational pension land. Yet it can be up to 75% for specilist ifas. Because the market is inefficient. Insist shopping around by all and stop this naysaying.

  8. I can only hope that tPR expressed themselves very poorly as this comes across as disgraceful and negligent.

    It is quite clear that members do not understand the OMO and that it is one of the biggest wins available to boost their pensions.

    If a member were offered the choice of, say, £400pm pension income or £500pm pension income, they would obviously choose the latter. Yet by not exercising the OMO, they choose the former to their detriment.

    As the lawyers would say, res ipsa loquitur (the thing speaks for itself) http://legal-dictionary.thefreedictionary.com/Res+Ipsa+Loquitur – tPR appears negligent for failing to prevent (financial) injury over matters which, as regulator, it has control.

    Economists might call this monopoly pricing http://tutor2u.net/economics/content/topics/monopoly/monopoly_profits.htm since, when a member does not use the OMO, there is a single provider. Again, this is a situation tPR surely has responsibility to address.

    Sipphound simply says that OMO should stand for Open Market OBLIGATION.

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